Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Monday, September 19, 2011

THE AMERICAN JOBS ACT

The
centerpiece of BO’s $447 Billion “American Jobs Act” proposal is an extension
and expansion of the “payroll tax holiday” of 2011 – the 2% reduction in
employee withholding of Social Security tax.If Congress does not act all employees will face a 2% cut in take home
pay on January 1, 2012.

The
new proposal calls for a 3.1% reduction of both the employee and employer share
of Social Security tax – a 50% cut in the tax.

In 2012 the employer’s share of the Social Security tax would be
sliced to 3.1% for the first $5 million in wages per firm and completely
eliminated for new workers and up to $50 million in increased wages for current
employees.

This payroll tax holiday is the latest evolution of Dubya’s
disastrous “tax rebate checks”, which created tons of confusion and FUs.BO replaced the checks with the “Making Work
Pay” credit, which FU-ed federal income tax withholding on wages and pensions
and resulted in some surprise balances due on 2009 and 2010 returns.The payroll tax holiday concept is a much
more efficient method of distributing money directly to Americans then mailing
out checks, but its effect on the economy is still questionable.

It is truly surprising that the biggest recipient of the 2%, and
the proposed 3.1%, cut in the Social Security tax is the family with income of
over $250,000 on whom BO previously wanted to increase income taxes. A husband
and wife, each earning the maximum $106,800 in Social Security wages in 2011
got an additional $4,272 in take home pay. With the new 3.1% cut this will increase
to $6,622 “in pocket” in 2012.

The jobs bill also includes substantial tax credits for businesses
that hire returning veterans and the long-time unemployed, extending jobless
benefits to the unemployed, with special emphasis on those out of work at least
six months and those in low-income neighborhoods, and aid to keep laid-off
teachers and first responders in their jobs and for major school construction
and infrastructure renovation.

According to the official White House “Fact Sheet” the bill also
includes –

+ Extending
100% expensing into 2012.

+ “Returning Heroes” tax credits from $5,600 to $9,600 to
encourage the hiring of unemployed veterans.

+ Preventing up to 280,000 teacher layoffs, while keeping
cops and firefighters on the job.

+ Modernizing at least 35,000 public schools by supporting
new science labs, Internet-ready classrooms and renovations at schools across
the country, in rural and urban areas.

+ Immediate investments in infrastructure and a
bipartisan National Infrastructure Bank, modernizing our roads, rail, airports
and waterways while putting hundreds of thousands of workers back on the job.

+ A New “Project Rebuild”, which will put people to work
rehabilitating homes, businesses and communities, leveraging private capital
and scaling land banks and other public-private collaborations.

According to the Fact Sheet, the Act is ”fully
paid for as part of the President’s Long-Term Deficit Reduction Plan”.

How?

“To ensure that the American Jobs Act is fully paid for,
the President will call on the Joint Committee to come up with additional
deficit reduction necessary to pay for the Act and still meet its deficit
target. The President will, in the coming days, release a detailed plan that
will show how we can do that while achieving the additional deficit reduction
necessary to meet the President’s broader goal of stabilizing our debt as a
share of the economy.”

Basically he
is saying that “we will worry about how to pay for this later”.

There is a
revenue-raiser in the Act.William Perez
explains over at ABOUT.COM’s Tax Planning: US (click here) –

The limitation works by increasing either the regular income tax or the
alternative minimum tax to act as an offset against the deductions. Instead of
a tax deduction, adjustment or exclusion achieving a tax savings at the
taxpayer's highest tax rate, such as 35%, the value of the deductions would be
limited to, at most, 28%. The difference between the tax savings at a
taxpayer's highest rate and the 28% limit is added to either the income tax or
alternative minimum tax. The limitations would take effect in 2013 for
taxpayers having adjusted gross income over:

$250,000 for married filing joint,

$225,000 for head of household,

$125,000 for married filing separately, and

$200,000 for single filers.”

As an employee, and employer (I employ
myself – so both halves come out of my pocket), I personally welcome the 50%
cut in Social Security tax, strictly from a selfish point of view.But, as I said earlier, I have my doubts as
to the effectiveness of this provision.

I support the WPA-like provisions for
creating jobs via encouraging and supporting public works projects.

And I also support tax credits for
employers for hiring returning veterans and the unemployed.

While I do see the need for extended
unemployment benefits for those who are genuinely looking for, and need, work,
I am a bit cynical when it comes to constant extensions of unemployment
benefits.There is a tendency to become
addicted to unemployment, choosing to remain “on the tit” and get “money for
nothing” rather than actually earning a living. There are a large number of
otherwise retired, albeit early, individuals who continue to collect
unemployment as long as possible because they can, and not because of any true
financial need.And we all know stories
of members of the “underground economy” who collect unemployment while working “off
the books”.

But I am strongly opposed to any
reduction of deductions, both above and below the line, based on one’s level of
income.I have always been against “PEP
and Pease”. If a tax deduction is valid for one it is valid for all.This is just a “back door” way of raising
taxes on the “rich”.I would much prefer
doing away altogether with special interest loopholes and deductions.And, as I have been saying for years, would
do away with the deduction for depreciation of real property.

And, as a tax preparer, calculating the
deduction limitation will be a PITA, and probably require a new form – although
it will allow we preparers to charge more because of the increased work.

Obviously the Act will not pass in its
current form.And you can be sure that
the Republicans will oppose it, not because of disagreements with its contents
but solely because it is a Democratic plan.So don’t start spending the proposed Social Security cut just yet.I will keep you up-to-date “As the Congress
Turns”.

No comments:

Follow by Email

CLICK ON THE ABOUT IMAGE TO CHECK OUT MY NEW E-BOOK

AIN'T THAT THE TRUTH!

DONALD T RUMP HAS NOT DONE A SINGLE THING THAT IS "APPROPRIATE" OR "ACCEPTABLE" FOR A CANDIDATE OR A PRESIDENT SINCE THROWING HIS HAT INTO THE RING.EVERY SINGLE DAY TRUMP PROVIDES MORE PROOF THAT HE IS AN IGNORANT, SELF-ABSORBED, UNFIT, MENTALLY UNSTABLE IDIOT, AND A DEPLORABLE AND DESPICABLE HUMAN BEING.TRUMP MUST BE REMOVED FROM OFFICE FOR MENTAL INCOMPETENCE ASAP! PLEASE READ AND SHARE THIS - THE TRUTH ABOUT TRUMP'S MENTAL CONDITION

Donald T Rump has not done a single thing that anyone with intelligence would consider “appropriate” or “acceptable” for a President since deciding to run for office.

Every single day Trump provides more proof that he is an ignorant, self-absorbed, unfit, mentally unstable idiot, and a deplorable and despicable human being, who must be removed from office ASAP.

VERY IMPORTANT -

(1) Before contacting me with questions about how a blog post relates to your specific situation, please be aware that I do not give free tax advice to non-clients by e-mail, comment response, or phone. So don't waste your time and mine.

(2) I am winding down my tax practice, and I will not, under any circumstances, accept any new clients. Period. I am actually trying to "thin the herd".